A Slow Negotiation Might Help Achieve a Better Brexit Solution

What happens now to the relationship between the United Kingdom and the European Union, after the Brexit referendum? It has been difficult to learn from British officials and policymakers over the past year what their game plan would be for dealing with the eventuality that has now materialized, namely the loss by the government of its ill-advised referendum on UK membership in the European Union. This lack of information, one presumes and hopes, reflects their famed diplomatic discretion rather than a deficiency of ideas. They may also not have been keen to present in advance as a fait accompli a manageable exit outcome that in practice would be achieved only at the end of subtle and skillful negotiation with the rest of the European Union.

The disarray among senior UK politicians in the days following the close defeat of the British government’s “Remain” campaign postpones what one assumes will be only a gradual revelation of the British negotiating strategy. As neither of the two Conservative politicians leading the opposing sides in the campaign will be prime minister in a few weeks’ time, it is too soon to expect clear indications of the likely aim and direction of the negotiations.

Whatever the ultimate outcome, it cannot fully address fully the major irritants that drove many—especially older—Britons to vote for exit. These include dissatisfaction with austerity-induced cutbacks in public services, a sense that policymakers are out of touch and beyond the effective control of the average voter, and the mistaken projection of these concerns onto the European Union and in particular on the visible increase in inward migration seen as driven by EU rules.

Worker mobility within the European Union—one of its four fundamental freedoms—has been in place since before Britain joined the European Common Market in 1973, though its scope has been extended, and it did not become a quantitatively significant contributor to British immigration until Poland and other Eastern European countries joined in 2004. Ever since then there have been more immigrants from countries outside the European Union (see Hawkins 2016).

Although immigration has become a politically fraught issue in some other EU countries also (exacerbated in 2014–15 by the increased flow of refugees from Syria), intra-EU mobility is not a recent add-on to the Union that could easily be suppressed to appease one member state.

The economic logic that points out the net benefits of immigration to an aging society has little traction in Britain, not least because insufficient attention has been given up to now to ensure that potential losers were adequately compensated and in particular that public services were sufficiently funded to meet increased demand effectively.

It seems unlikely that any Brexit solution that does not squarely address the immigration question could be politically viable in post-referendum Britain.

But the domestic political repercussions in other EU member states of any potential concessions given to Britain will weigh heavily on the main decision makers in future negotiations, namely the heads of government of those other countries.

Clearly Britain still wishes to maintain full access to the European single market in goods and services. The mutual benefit of free trade in this respect should be clear, but the remaining EU members, perhaps inevitably, have begun to speak in terms of what price Britain should pay for this access.

Norway—not an EU member—has such access (along with the two other small countries in the European Economic Area) but also accepts free migration and pays a sizable financial contribution. This Norway model might be an acceptable interim for British negotiators to accept as they leave the European Union—and would probably preserve the ability of London-based banks and other financial firms to continue doing business in the European Union on the same basis as at present—but this model hardly meets the apparent political imperative in Britain to have greater national control over migration.

While uncertainty about future arrangements is clearly damaging for the short and medium term, the complexity of disengagement militates against any quick finalization. This applies in particular to legislation: Membership in the European Union is by now deeply embedded in UK legislation, and unpicking tens of thousands of pages of legislation (Miller 2010) presents an especially complex challenge.

While the big political decisions will be taken by the European Council heads of government, the eventual solution is likely to require a myriad of detailed provisions. After all, this exit will have important ramifications in all areas of economic policy, from agriculture to finance. In some parts of the United Kingdom as much as 85 percent of farm income currently is subsidized by the EU’s Common Agricultural Policy; what will replace that? And much of the wholesale financial business in euros is conducted at present in London; will that continue?

Reaching closure will thus test Europe’s governance structures at all levels. These structures have not always proved themselves to be especially effective—not least in dealing with the euro crisis. (Indeed, I have recently suggested that governance gaps contributed a lot to the delay and other deficiencies in dealing with that crisis—see my piece in a recently published ebook on euro area governance, Carletti et al. 2016).

Under these circumstances, perhaps the best one can hope for is that a lengthy process of negotiation allows an improved understanding of the issues among the British people, who have been battered by misinformation and prejudice in the referendum campaign. Their traditional tolerance and moderation may reassert itself to allow acceptance of a less isolationist solution than seems currently in the cards. But that would also require the British government to acknowledge and address the legitimate concerns of those parts of society that have suffered most and feel most threatened by the evolution of the economy in recent times.